BRUNNER, LIESENBORGHS & PARTNER: Sports and Law in Germany09/08/2020

- Legal aspects of fixed-term employment contracts in professional football-

Repeatedly there are practical difficulties in the application of laws and other constitutional principles in sport, because (professional) sport and its special circumstances are often difficult to reconcile with legal regulations. Examples of such difficulties are regularly found in the field of labour law. According to German legal understanding, professional footballers are employees and are therefore subject to the instructions of their club as employer. The contracts that players conclude with the clubs are legally classified as employment contracts.

In German professional football in recent years, a discussion has flared up as to whether the usual fixed-term player contracts are effective under German (labour) law. This dispute has recently been dealt with by the highest German court for labour law matters, the Federal Labour Court. The background was the lawsuit filed by former goalkeeper Heinz Müller, who had filed a complaint against the limitation period of his employment contract with the Bundesliga club FSV Mainz 05. This legal question was of considerable importance for the football business in Germany. If the fixed-term nature of players' contracts were invalid under German employment law, all existing fixed-term contracts would legally be regarded as employment relationships of indefinite duration and the parties to the contract would be contractually bound together beyond the agreed term. The contract would then have to be terminated by giving notice with the respected notice period. 

However, in its eagerly awaited decision (ruling of 16 January 2018, ref. 7 AZR 312/16), the Federal Labour Court (Bundesarbeitsgericht) declared the practice of fixed-term employment contracts with licensed players of the German Bundesliga to be compatible with the law. In the following, we would like to present the most important points of this judgement. First, however, we will give an overview of the main features of the law on fixed-term employment relationships in Germany.

1.) The fixed term of employment contracts under German labour law
a) The legal basis for fixed-term contracts of employment is the Part-Time and Fixed-Term Contracts Act (TzBfG). A distinction must be made between fixed-term contracts, where a calendar-based term is agreed in the employment contract, and purpose-based fixed-term contracts, where the duration of the employment relationship depends on the occurrence of a specific event (e.g. employment of a sickness replacement).

b) Fixed-term employment contracts generally end when the fixed term expires or when the purpose of the fixed term is fulfilled. The contract cannot be terminated in an orderly manner unless this is expressly agreed in the employment contract.

c) The fixed-term agreement must be in writing before the start of the contract; it is not possible to make up for this after the start of the employment relationship. If the written form is not complied with, the time limit is ineffective, an unlimited employment relationship is established and a period of notice would have to be given to terminate the contract.

d) In principle, a fixed-term employment contract requires justification by an objective reason. These potential reasons are listed as examples in the law (TzBfG). They include the temporary need for an additional worker (temporary help), the need to replace an employee who is temporarily absent (e.g. pregnancy substitution) or the nature of the work (e.g. engagement of a theatre actor for a specific season).

Only if the fixed period of the employment contract or, if it renewed not more than three times and the total duration does not exceed two years, calendar-based fixed term contract does not require an objective reason. However, this shall only apply to new hires. If an employment relationship has already existed with the same employer (within the last three years), a fixed-term contract without an objective reason cannot be agreed.

e) The agreement of a fixed-term contract of more than 2 years or the renewal of an already fixed-term contract for a total period of more than 2 years requires justification by an objective reason. 

f) Any employee may have the validity of a fixed-term contract reviewed by the court. If the court finds the clause with the fixed-term invalid, e.g. because there is no objective reason justifying the fixed-term in the contract, this leads to an employment relationship of indefinite duration. It is thus clear that the German legislature is based on the principle that an employment relationship of indefinite duration is the normal case – and therefore subject to the law on notice period – and that a fixed term contract is the exception.

2.) The fixed-term employment contracts of professional football players according to the case law of the Federal Labour Court
a) Initial situation: In the football business, it is common practice, particularly when younger players with a lot of potential are signed, for contracts to be concluded for several years (usually 3 or 4 years). Basically this is absolutely reasonable, as the young players are first to be developed further and then, if necessary, transferred on at a profit. If a fixed-term contract were not possible under German labour law, the employment contracts would be unlimited and could be terminated by the player at any time in compliance with the notice period. Thus, if a player wished to switch to another club because of better income prospects, he could terminate the employment contract with his current club and then transfer without any transfer fee to be paid by the signing club. The player could then demand the transfer fee that does not accrue as a signing fee for his own benefit from the new club. Popular players would thus have a much stronger position in negotiating. 

In the case of older players who have been playing for a longer period of time in a club, expiring contracts are often only extended by one year in view of the reduction in physical fitness.  

In both cases, an objective reason must justify the fixed-term nature of the employment contract. The existence of such an objective reason was disputed by former goalkeeper Heinz Müller (who was an older player), which is why he took legal action against the validity of the fixed-term contract.

b) In the case "Heinz Müller“, mentioned above, however, the Federal Labour Court confirmed the usual practice of fixed-term contracts in football and found that the employment relationship between the player and the club had special features which justified the fixed-term contract on the basis of the specific nature of the work performed. The judgment is based on the following considerations:

aa) Clubs, spectators and the general public expect football players to perform at their best. The player owes the sporting performance to his club under his employment contract. Naturally, a player cannot perform these top performances permanently until retirement age, but only for a limited period, as performance usually decreases with the player's age. The career of a football player is therefore limited in time from the outset. This justifies a legitimate interest of the parties to the contract in establishing a fixed-term employment relationship. 

bb) From the clubs' point of view, a regular exchange of players is necessary in order to achieve the greatest possible success in sport. This is the responsibility of the coach, who has the task of developing the game system and tactics with his players. It is not uncommon for players not to be selected if they no longer fit within the coach's system. These players can leave the club at the end of their contract period. If, on the other hand, the contracts were open-ended, the club would have to terminate the player, although the Act for protection against unlawful dismissal would be applicable in Germany and could complicate the termination of the contract.

Conversely, clubs plan to retain a player for a certain period of time, as players often have to get used to the new system and the new coach's instructions before they can perform at their best and help the club to succeed. This planning security is offered to clubs by the conclusion of a fixed term contract, as the regular termination of the contract is regularly excluded, so that the player cannot switch clubs on his own initiative before the end of the term.

cc) the player himself also has an interest in the use of fixed-term contracts. The expiry of temporary contracts of players in other clubs creates new employment opportunities for the player. Every time the player concludes a new employment contract as a free agent, he is also able to agree on a signing fee and on better remuneration –even when a player's contract with his current club is renewed.  Furthermore, it has to be taken into account that the employment contracts of professional footballers are integrated into the international transfer system. Expiring contracts create new employment opportunities and give a boost to the transfer system. By selling players before the end of their contracts, the club can generate transfer income. This compensates the club for its investment in the development of the player. Ultimately, this also benefits the player himself, since transfer income is an essential component of a club's economic strength, which enables the club to pay higher remuneration to a  player.

All these circumstances and particularities of the football sector constitute specific features of the relationship, which, in the view of the Federal Labour Court, outweigh the employee's interest in establishing a permanent employment relationship.

c) Finally, the Federal Labour Court also concluded that this application of the German labour law is in conformity with European law. The requirements of Council Directive 1999/70/EC concerning the Framework Agreement on fixed-term work concluded by ETUC, UNICE and CEEP had to be respected. The objective of the Directive is to prevent abuse arising from the use of successive fixed-term employment contracts. The Framework Agreement allows fixed-term contracts for "objective reasons", while also recognising that fixed-term employment relationships may be characteristic of employment in certain sectors or occupations. The German legislator has transposed these European law requirements into German law. In particular, the factual ground of "characteristic of the work performance" used in the present case allows for a case-by-case examination in which the particularities of the work performance, the respective profession and the respective business sector can be taken into account in weighing the interests of the employee.

by Tobias Ritzenthaler, LL.M. and Thomas Schneider

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